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evista Latinoamericana de Psicología (2016) 48, 30---41

www.elsevier.es/rlp

Revista Latinoamericanade Psicología

RIGINAL ARTICLE

tudying the links between organizational culture,nnovation, and performance in Spanish companies�

ulia C. Naranjo-Valenciaa,∗, Daniel Jiménez-Jiménezb, Raquel Sanz-Valleb

Departamento de Ingeniería Industrial, Universidad Nacional de Colombia, Sede Manizales, ColombiaDepartamento de Organización de Empresas y Finanzas, Universidad de Murcia, Spain

eceived 10 September 2012; accepted 6 March 2015vailable online 10 December 2015

KEYWORDSOrganizationalculture;Innovation;Performance

Abstract Innovation is considered to be one of the key factors that influence the long-termsuccess of a company in the competitive markets of today. As a result, there is a growing interestin the further study of the determining factors of innovation. Today, the focus is on these factorsrelated to people and behavior, emphasizing the role of organizational culture, as a factor thatcan both stimulate or restrain innovation, and therefore affect company performance. However,there is little empirical research linking these variables, particularly in the Spanish context.The purpose of this paper is to study these links by using a sample of industrial companies. Theresults show that culture can foster innovation, as well as company performance, or it could alsobe an obstacle for both of them, depending on the values promoted by the culture. It has beenfound specifically, that an adhocratic culture is the best innovation and performance predictor.Based on these results, it can be concluded that, innovation mediates the relationship betweencertain types of organizational cultures and performance.© 2015 Fundación Universitaria Konrad Lorenz. Published by Elsevier España, S.L.U. This isan open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

PALABRAS CLAVECulturaorganizacional;

Estudiando el vínculo entre cultura organizacional, innovación y desempeno enempresas espanolas

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Innovación; Resumen La innovación se considera como uno de los factores clave del éxito a largo plazo

Desempeno de una empresa en los mercados competitivos actuales. Como resultado, existe un creciente

interés por profundizar en los determinantes de la innovación. En la actualidad la atenciónse centra en los determinantes relacionados con las personas y el comportamiento, y hacehincapié en el papel de la cultura organizacional como un factor que puede estimular o fre-nar la innovación y por lo tanto afectar el desempeno de las empresas. Sin embargo, existe

� Thesaurus of Psychology: Organizational culture (Organizational Climate PN 5181, SC 35710), Innovation (PN 825, SC 25499).∗ Corresponding author.

E-mail address: jcnaranjov@unal.edu.co (J.C. Naranjo-Valencia).

ttp://dx.doi.org/10.1016/j.rlp.2015.09.009120-0534/© 2015 Fundación Universitaria Konrad Lorenz. Published by Elsevier España, S.L.U. This is an open access article under the CCY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

Studying the links among organizational culture, innovation, and performance in Spanish firms 31

poca investigación empírica que vincule estas variables, en particular en el contexto espanol. Elpropósito de este trabajo es estudiar estos vínculos en una muestra de empresas industriales.Los resultados muestran que la cultura puede fomentar la innovación y el desempeno de laempresa o puede actuar como una barrera para ambos, dependiendo de los valores que fomentala cultura. En particular, se encuentra que la cultura adhocrática es el mejor predictor deinnovación y desempeno. Además, sobre la base de los resultados, se concluye que la innovaciónmedia la relación entre cultura y desempeno.© 2015 Fundación Universitaria Konrad Lorenz. Publicado por Elsevier España, S.L.U. Este esun artículo Open Access bajo la licencia CC BY-NC-ND (http://creativecommons.org/licenses/by-nc-nd/4.0/).

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Firms currently must operate in an environment char-acterized by ever increasing global competition, changingcustomer demands, rapid technical changes, and uncer-tainty (Droge, Calantone, & Harmancioglu, 2008; Im,Montoya, & Workman, 2012). Within this context, innovationis considered critical for achieving sustainable competi-tive advantages and therefore for firm success (Damanpour& Gopalakrishnan, 2001). That is mostly due to the factthat innovative firms are more flexible and can respond tochange more quickly; they go the extra mile when it comesto creating new opportunities and exploiting existing ones(Drucker, 1985). Empirical research provides support for apositive relation between firm innovation and performance(Damanpour & Gopalakrishnan, 2001).

Given the importance of innovation in improving firmperformance, a number of studies have attempted toidentify the factors that can enhance innovation (Koc &Ceylan, 2007). Currently one of the variables deemed tohave great influence on innovation is organizational culture(Büschgens, Bausch, & Balkin, 2013; Lin, Donough, Lin,& Lin, 2013). Because organizational culture influencesemployees’ behavior, it may lead the personnel to acceptinnovation as a fundamental value of the organization andto feeling more involved in it (Hartmann, 2006).

Despite the importance given to culture as a stimulantfor innovation, empirical research on the topic is somewhatlimited. Some studies on the link between culture and inno-vation merely look into some elements of culture (Cabello,Carmona, & Valle, 2005; Hage & Dewar, 1973; Laursen, 2002)whereas others do not use the same cultural traits or typolo-gies (Chang & Lee, 2007; Lau & Ngo, 2004; Obenchain &Johnson, 2004). Besides, recent studies underpin the needfor empirical research on organizational culture and inno-vation (McLaughlin, Bessant, & Smart 2008; Nakata & DiBenedetto, 2012; Tellis, Prabhu, & Chandy, 2009).

The purpose of this paper is to bridge a gap in the lit-erature on the topic. First, a literature review was madeand the most important characteristics related to innova-tive cultures were identified and compared to the culturaldimensions and typologies identified in the Competing Val-ues Model. The research aims to identify what model orwhat model typologies stimulate more innovation and per-formance. In addition, considering that culture enhancesperformance and innovation and that innovation in turnaffects performance, another question arose, ‘‘Is the influ-

ence of culture on performance direct or is it mediatedby innovation? Innovation’s role of mediator in the rela-tion between culture and performance has not yet been

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tudied in the literature on the topic. Furthermore, it allecomes more interesting upon taking into account Crossannd Apaydin (2010), who stated that a possible manneror advancing in innovation research is to test the connec-ion between identified innovation determinants, innovationutcomes, and firm performance.

The first section of this article reviews the literature onhe topic. The second section discusses an empirical study ofhe links among organizational culture, innovation, and per-ormance, which used a sample of Spanish companies. Thenal section draws the conclusions of the study and discussesuture lines of research.

heoretical framework

tudying the indirect effect of culture in the performance,nvolves testing, besides the direct effect of culture on firmerformance, the effect of culture on firm innovation andhe effect of firm innovation on performance. These rela-ions are developed in the following sections. It is importanto clarify that the effect of culture on firm innovation inhe second relation has already been partially tested by theuthors in previous research (Naranjo-Valencia, Jiménez-iménez, & Sanz-Valle, 2012), and it is taken up here again,ince it is required to complete the model of relations. Twoypes of culture were discussed in the previous research:dhocratic and hierarchical culture. In addition to these,his paper includes clan and market cultures.

nnovation and performance

nnovation has been conceptualized in a variety of ways.ECD (2005: 46) defines innovation as ‘‘the implementationf a new or significantly improved product (good or service),r process, a new marketing method, or a new organiza-ional method in business practices, workplace organizationr external relations’’.

Innovations may be classified using different criteria.ECD (2005: 17) distinguishes between four types of innova-ions: Product innovations involve significant changes in theapabilities of goods or services, both entirely new goodsnd services and significant improvements to existing prod-cts are included. Process innovations represent significant

nnovations refer to the implementation of new organiza-ional methods, these can be changes in business practices,n workplace organization or in the firm’s external relations.

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Hierarchy Market

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arketing innovations involve the implementation of newarketing methods, these can include changes in productesign and packaging, in product promotion and placement,nd in methods for pricing goods and services.

In general, the literature on the topic considers inno-ation one of the key drivers for long-term corporateuccess, especially in dynamic markets (Damanpour &opalakrishnan, 2001). The rationale behind the idea is

hat innovation often serves to deal with a turbulentxternal environment. To survive in Schumpeterian environ-ents, organizations must be able to cope with increasing

omplexity and high-speed change. In such contexts, com-anies with the capability to innovate will be able toespond to the challenges faster, manufacture improvedew products, and exploit market opportunities better thanon-innovative companies (Jiménez-Jiménez, Sanz-Valle, &odriguez-Espallardo, 2008).

Many studies have demonstrated the positive effect ofnnovation on performance (Afcha, 2011; Damanpour &opalakrishnan, 2001; De Clercq, Thongpapanl, & Dimov,011; Droge et al., 2008; Gálvez & García, 2012; Prajogo,006; Roberts & Amit, 2003; Subramanian & Nilakanta,996). Thus, despite some conflicting evidence (Zhang,011), theory and empirical research suggest a positive rela-ion between innovation and firm performance. Therefore,he first hypothesis proposed is:

1. Firm innovation is positively associated with firm per-ormance.

rganizational culture and innovation

iven the importance of innovation in firm success, aumber of studies have attempted to identify its main deter-inants (Crossan & Apaydin, 2010). In general, they can be

rouped into individual level, organizational level, and envi-onmental level. Within organizational level, the literatureefers to size, organizational design, strategy, leadership,uman resource practices, financial support, and organiza-ional culture. Out of them all, the ones that stand outost are organizational design and organizational culture

Damanpour, 1987, 1991; Mumford, 2000).Organizational culture can be defined as the values,

eliefs and hidden assumptions that the members of anrganization have in common (Miron, Erez, & Naveh, 2004).uch shared values form the basis of communication andutual understanding and affect employee behavior through

ts two main functions: internal integration and coordinationHofstede, 1988; Martins & Terblanche, 2003). Thus, culturean stimulate innovative behavior among the members of anrganization because it can lead them to accept innovations a basic value of the organization and foster commitmento it (Hartmann, 2006).

Empirical research has also provided evidence of a sig-ificant relation between culture and innovation (Büschgenst al., 2013; Chang & Lee, 2007; Lau & Ngo, 2004; Lin et al.,013; Miron et al., 2004; Naranjo-Valencia et al., 2012).

hat the literature on the topic has not clarified enough

s what types of culture enhance or inhibit innovation.In order to identify the characteristics of an innova-

ive culture, the model proposed by Cameron and Quinn

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Figure 1 Cameron and Quinn (1999) Model.

1999) was used, the Competing Values Framework (CVF),his model is one of the most influential and extensivelysed models in the area of organizational culture researchYu, 2009).

Cameron and Quinn (1999) define four cultures --- adhoc-acy, clan, market and hierarchy --- using two dimensions (seeig. 1): flexibility and discretion versus stability and con-rol and external focus versus internal focus and integration.sing these along with six organizational aspects-dominantharacteristics, organizational leadership, employee man-gement, the organizational glue, strategic focus, andriteria for success --- they determine four types of orga-izational cultures.

The adhocracy culture emphasizes flexibility and change;t is externally orientated. It is usually seen in companieshat operate in dynamic contexts and in those seeking to beeaders in their markets. The key values in an adhocracyulture are creativity, entrepreneurship, and risk taking.he clan culture also stresses flexibility but it is internallyocused. Characteristics of clan culture firms are team-ork, employee involvement, and corporate commitment tomployees. A market culture preaches control and stabilitynd is externally oriented. The core values of firms with thisulture are goal achievement, consistency, and competitive-ess. Finally, a hierarchy culture is also control-oriented butt focuses on the internal organization. Its key values arefficiency and close adherence to norms, rules and regu-ations (Sanz-Valle, Naranjo-Valencia, Jiménez-Jiménez, &erez-Caballero, 2011).

Having defined the types of models suggested by Cameronnd Quinn (1999), their relationship with innovation is nowxamined. First, a review of the literature that analyzeshe culture values that foster innovation. Table 1 summa-izes the literature on the topic. As may be appreciated inable 1, there is general consensus regarding four character-stics or cultural values that enhance innovation: creativity,reedom/autonomy, a risk-taking attitude, and teamworkNaranjo-Valencia, 2010).

Regarding creativity, innovation relies on the appearancef new and creative ideas (Mumford, 2000) and innovations achieved by combining creativity and the implementa-ion of such ideas. Therefore, an enterprise needs creative

eople to support the processes, not only those associatedith developing ideas, but also those involving the selection,ssessment, and execution of the ideas (Jamrog, Vickers,

Studying the links among organizational culture, innovation, and performance in Spanish firms 33

Table 1 Cultural values which foster innovation.

Characteristics References

Creativity, initiative, entrepreneurialmindset

Wallach (1983), Shrivastava and Souder (1987), Claver et al. (1998), Schneider,Gunnarson, and Niles-Jolly (1994), Martins and Terblanche (2003), McLean(2005), Jamrog et al. (2006)

Freedom/autonomy Shrivastava and Souder (1987), Ahmed (1998), Arad, Hanson, and Schneider(1997), Martins and Terblanche (2003), McLean (2005), Jamrog et al. (2006)

Risk taking Wallach (1983), Claver et al. (1998), Martins and Terblanche (2003), McLean(2005), Jamrog et al. (2006)

Teamwork Arad et al. (1997), Martins and Terblanche (2003), McLean (2005), Jamroget al. (2006)

Slack of resources Ahmed (1998), McLean (2005), Jamrog et al. (2006)Marketing orientation Martins and Terblanche (2003), Jamrog et al. (2006)Decision making Martins and Terblanche (2003), McLean (2005)Employee participation Claver et al. (1998), McLean (2005)Continuous learning Martins and Terblanche (2003)Flexibility Arad et al. (1997), Martins and Terblanche (2003)

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Source: Naranjo-Valencia (2010, p. 61).

& Bear, 2006; McLean, 2005). Hence, an innovative cultureshould, on one hand, encourage employees to take time tothink creatively and experiment (Shattow, 1996), and, onthe other, encourage them to seek new ways to tackle prob-lems and explore their ideas even if the value of the resultsmay not be clear (Miron et al., 2004).

Freedom, which manifests itself as autonomy, empow-erment, and participation in decision-making (Isaksen &Ekvall, 2010; Martin, 2002) is one of the most common ele-ments associated with an innovative culture. An atmosphereof freedom and autonomy increases the employees’ intrinsicmotivation, considered a key factor in promoting creativityin an organization (Amabile, 1998; McLean, 2005).

As for risk taking, companies have realized that success-ful innovation is not achieved on the first try (Claver, Llopis,Garcia, & Molina, 1998). If the firm perceives that risk tak-ing is dangerous and may not produce good results, thepersonnel will not risk any creativity, innovation or experi-mentation (Filipescu, 2007).

A comparison of the above-mentioned characteristics tothe types of culture developed by Cameron and Quinn (1999)leads to the conclusion that, flexibility-oriented culturesenhance innovation because flexibility is associated withcreativity, freedom, and a risk-taking attitude, whereas cul-tures that stress stability and control may inhibit innovation.Empirical research provides evidence to justify that rela-tion (Jaskyte & Dressler, 2005; Jaskyte & Kisieliene, 2006).Moreover, externally oriented cultures can be expected tofoster innovation more than internally oriented cultures.Whereas customer orientation aids the initiation stage bydirecting product developers toward external users, seek-ing their input to hone new product ideas (Im, Nakata, Park,& Ha, 2003), if a company stays locked inside its own fourwalls, It is not able to discover and exploit opportunities out-side its existing businesses or beyond its current technical

or operational capabilities (Wolpert, 2002).

Then, the type of culture of the CVF expected to mostfoster innovation is an adhocracy culture as it emphasizesflexibility and is externally orientated. On the contrary, a

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ierarchy culture inhibits innovation because the values thatt emphasizes hinder it: control and stability and an internalrientation. Besides the key innovation values (i.e. creativ-ty, freedom, and a risk-taking attitude) are missing.

In relation to the other two types of culture model (thearket and the clan), it is necessary to deepen their charac-

eristics to clarify the relationship. Taking into account theharacteristics of a clan culture, it may foster innovation ast emphasizes teamwork and employee participation. If theork team has a diversity of talented interdisciplinary mem-ers who come up with challenging ideas and incorporatingew experiences and information it will promote creativ-ty and innovation (Castaneda, 2015; Jamrog et al., 2006;artins & Terblanche, 2003; McLean, 2005). However, thevidence provided in empirical studies regarding this topics non-conclusive. Whereas Llorens, Ruiz, and García (2005)nd that cohesion of teams fosters innovation and Moore1997) proves that it encourages creativity, other studiesresent evidence to the contrary. For example, Scott andruce (1994) find no particular effect on innovative behav-

or when team members are changed. Finally, Jaskyte andisieliene (2006) observed that an organizational cultureharacterized by stability and guidance for the team isnversely related to innovation. In addition, a clan cultures internally focused, which may reduce the firm’s access toew ideas and opportunities. Wolpert (2002) states that if arm is stuck within their own four walls, it will be unable toiscover and take advantage of opportunities.

In the case of market culture, there are several facts inavor of and against it. The external orientation of a mar-et culture encourages innovation as offering new ideas andarkets the company familiar with the needs of customers

Reid & Brentani, 2004; Salavou, Baltas, & Lioukas, 2004;ong, Thieme, & Xie, 1998). In contrast, other studies findhat excessive attention to the current needs of customers

an be a barrier against some types of innovation (Baker &inkula, 2002), however, in general, the literature on theubject believes that the external orientation encouragesnnovation. Additionally, the market culture --- according to

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4

ts definition in the model of Cameron and Quinn, empha-izes control and stability rather than flexibility, which is aonstraint to innovation.

In short, the relation between innovation and a clanulture or a market culture is not clear. The literaturen the topic solely provides clear arguments and evidenceor the links between an adhocracy culture or a hierarchyulture and innovation. Therefore, we propose the followingypothesis:

2. Organizational culture affects firm innovation. In par-icular, an adhocracy culture has a positive effect on firmnnovation whereas a hierarchy culture has a negativempact on firm innovation.

rganizational culture and performance

he above sections propose that organizational culturenhances firm innovation and that innovation is related toerformance. Therefore, the fact that culture has an indi-ect effect on performance may be assumed. However, thessumption in the literature on the topic is that culture isirectly related to performance because culture influenceshe behavior of the members of the organization (Galves &arcía, 2011; Hofstede, 1988; Martins & Terblanche, 2003),s explained above. Furthermore, according to the resource-ased view of the firm, culture can be a source of sustainableompetitive advantage not only because it is valuable andare but also because it is difficult for competitors to imitates many of its most important characteristics are tacit andighly complex (Coyne, 1986).

Furthermore, the literature suggests that different typesf culture have a different effect on performance. Gordonnd DiTomaso (1992) study the effect of the cultural orien-ations adaptability vs. stability on financial performancen a number of U.S. firms. They concluded that com-anies that emphasize adaptability tend to have betternancial performance than companies that emphasize sta-ility. On the contrary, Xenikou and Simosi (2006) studied

sample of Greek organizations and they concluded thathe achievement orientation (market culture) was relatedo performance whereas the humanistic orientation (clanulture) was not, and indicated that the organizationalorms that promote goal setting, productivity, and effec-iveness were related to high performance. The studyonducted in Japanese companies (Tokyo) by Deshpande,arley, and Webster (1993) showed that the market culture isssociated with better performance, followed by the adhoc-acy culture, and that the clan culture and the hierarchyulture are associated with poor performance.

Other studies used other typologies such as the cul-ural trait typology that can be compared to Cameron anduinn’s. Said typology, developed and tested by Denison andishra (1995), mention the traits involvement, adaptability,ission, and consistency (they share the same cultural-type

rientation introduced by Cameron and Quinn), which cor-espond to the cultural types: clan, adhocracy, market and

ierarchy, described above.

Denison and Mishra (1995) conducted a study in the U.S.,oncluding that the four traits are positively related toubjective measures (quality, employee satisfaction, and

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J.C. Naranjo-Valencia et al.

verall performance). Fey and Denison (2003) conducted atudy using Russian firms and compared its results to thosebtained in similar studies in the U.S. In general, they con-luded that the adaptability and involvement (adhocracynd clan) of companies with a flexible orientation are theost relevant traits of effectiveness in the Russian contexthereas in the U.S. context, mission (market culture) is

mportant. Likewise, Chan, Shaffer, and Snape (2004) con-luded based on a study in Hong Kong that adaptabilityadhocracy) were the trait more related to performance.

The four cultural types have different effects on busi-ess performance. First, the expectation for the adhocracyulture (adaptability), characteristic of organizations thatre leaders in products and innovation, which stimulate thentrepreneurial mindset, initiative, creativity, and a risk-aking attitude, is that it would have a positive effect onerformance. Calori and Sarnin (1991), for example, it wasound that companies that value adaptation are likely toreate ambitious objectives, give priority to customer sat-sfaction, and show willingness to try out new ideas. Suchalues and practices were closely related to growth in therms that those authors studied. In general, prior researchrovides evidence that the adhocracy culture has a positiveffect on performance (Chan et al., 2004; Denison & Mishra,995; Deshpande et al., 1993; Fey & Denison, 2003; Gordon

DiTomaso, 1992).Second and sharing the same external orientation

mphasis is the market culture; these companies pro-ote ambitious, competitive objectives; their people are

esult-oriented and success is based on market penetra-ion and market share. Organizations in which ‘‘efficiencynd achievement is the norm’’ motivate employees byetting difficult yet attainable goals and by providing feed-ack on employee performance, which in turn promotes aerception of competence and feelings of self-efficiencynd collective efficacy (Xenikou & Simosi, 2006). Further-ore, the market culture (Chan et al., 2004; Denison &ishra, 1995; Deshpande et al., 1993; Fey & Denison, 2003;otrba et al., 2012) is also found to improve performance,ainly when the performance measuring stick is market

esults.There is also evidence that the clan culture and, in gen-

ral, all cultures that enhance cooperation and teamworkave a positive effect on performance (Petty, 1995). Equally,

high level of involvement fosters a strong sense of psy-hological ownership and commitment to the organizationnd its goals (Denison & Mishra, 1995). Although Deshpandet al. (1993) found a negative effect and Xenikou and Simosi2006) did not obtain any significant results for the relationetween this culture, which they called humanistic orien-ation, and performance, other studies provide evidence of

positive relation (Denison & Mishra, 1995; Fey & Denison,003; Gordon & DiTomaso, 1992).

Finally, the hierarchy culture has limitations in currenthanging environments where the ability to adapt becomesssential for successful performance, as this type of cultureften shows most resistance to change and adaptation. Itsureaucratic nature appears to be an obstacle in the organi-

ation’s struggle to respond to fundamental environmentalhange (Denison & Mishra, 1995). Although some studiesave found a positive relation between the hierarchy culturend some levels of organizational results (Chan et al., 2004;

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Studying the links among organizational culture, innovation,

Denison & Mishra, 1995) or a non-significant relation (Fey& Denison, 2003), the general literature on the topic pro-vides evidence that its effect on performance is negative(Deshpande et al., 1993; Gordon & DiTomaso, 1992; Han,2012).

Existing literature does show a precedent of the impor-tance of the cultural types on effectiveness. However,several of the studies are conclusive in terms of correla-tions among variables, although they do not show significantresults in the regressions. In addition, the conclusions arebased on U.S., Russian, Japanese and Greek companies. Theliterature on the topic suggests that national cultures proba-bly influence the behavior of the management theory, whichcertainly justifies a study in the Spanish context, not yetconducted much less assessed.

Taking into account all of the above considerations, thethird hypothesis proposed is:

H3. Organizational culture affects performance. Morespecifically, the adhocracy culture, the market culture, andthe clan culture have a positive effect on performancewhereas the hierarchy culture has a negative effect.

As discussed above, prior research has shown a directcausal relation between culture and performance and alsobetween culture and innovation. However, the literature onthe topic shows that the interrelation among the three con-structs has not been modeled as yet. An indirect effect ofculture on performance through innovation is predictablebecause --- depending on the values that it encourages ---culture may foster or limit an organization’s innovationactivity. Therefore, innovation has an impact on organiza-tional performance. Along these lines, the fact that sometypes of culture may indirectly affect performance throughinnovation because they either foster or limit it may beargued.

The performance of organizations with a proactiveculture that stimulates risk-taking activities, creativity, andtolerates error is superior to the performance in com-panies that do not. This is due to the fact that suchorganizations can develop more and better differentiatedinnovations more rapidly than their competitors. Accordingto Simpson, Siguaw, and Enz (2006) an innovation-orientedfocus, characteristically with an adhocracy culture mayimprove long-term business performance.

On the contrary, a hierarchy culture may have a nega-tive effect on organizational results because values such asemphasis on rules and procedures that lead to conformityand lack of creativity, excessive control, and lack of auton-omy, are not deemed favorable conditions for innovation.Furthermore, the lack of innovation will be responsible fora negative effect on performance. This leads us to proposeanother hypothesis:

H3.1. Organizational culture indirectly affects perfor-mance through firm innovation. In particular, the adhocracy

culture has a positive indirect effect on performancethrough firm innovation whereas the hierarchy culture has anegative indirect effect on performance through firm inno-vation.

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performance in Spanish firms 35

ethodology

ata collection and sample

he data for this study came from a more extensiveesearch financed by the European Union (with FEDERunds). The population comprised Spanish organizations withore than fifteen employees located in southeast Spain. Itas designed to cover a range of industries, excluding those

n the agricultural sector. The final sample included 1600ompanies.

Information was collected through a face-to-face inter-iew with the firm CEOs, using a previously testeduestionnaire. A total of 446 valid questionnaires werebtained, representing a response rate of 27.9%. Respondentnd non-respondent companies were compared in terms ofize and performance. No significant differences were foundetween those two categories, suggesting that there was noesponse bias.

easures

nnovationccording to Manu (1992), innovation deals not only withutputs (e.g. new products or processes) but also withnputs (e.g. R & D expenditure) and with timing (e.g. pio-eers, quick seconds or late followers). In this line, 5-pointcales were used for each type of innovation. They coverhe number of new products/process/management systemsntroduced, the pioneer disposition to introduce new prod-cts/process/management systems, the clever response toew products/process/management systems introduced bythers companies in same sector, the R&D efforts to developew products/process/management systems and the effortso develop new products/process/management systems inerms of hours/person, teams and training involved. Then,he scales were combined to measure innovation by calcu-ating the mean of the 5-point scales (˛ = 0.779).

erformancedentifying an optimal measure for a firm’s performance is aroblem in itself, since it is difficult to obtain financial meas-res. According to Deninson and Mishra (2003), subjectiveeasures of effectiveness are better suited for comparing

disparate set of firms than objective measures of effec-iveness. That is why a 5-point Likert scale was used. Theespondents were asked to discuss the evolution of the firm’serformance over the past three years, in terms of twelvetems taken from Quinn and Rohrbaugh (1983). Then, thecales were combined to measure performance (Cronbach

= 0.873).

rganizational culturehe organizational culture measure employed is based onhe Organizational Culture Assessment Instrument (OCAI)eveloped by Cameron and Quinn (1999). In this researchhere were used four of the six key dimensions of organiza-

ional culture the OCAI proposes: dominant characteristics,anagement of employees, organization glue and criteria

f success since authors did not have information abouthe other two dimensions: leadership style and strategic

36 J.C. Naranjo-Valencia et al.

Table 2 Means, standard deviations and correlations among variables.

Mean Standarddeviation

1 2 3 4 5 6 7 8 9 10 11 12

1 Industry 0.56 0.49 12 Age 22.04 15.30 0.08* 13 Size 71.14 18,144 0.01 0.10** 14 Analyzer 0.44 0.49 0.03 −0.04 −0.03 15 Defensive 0.28 0.44 −0.07* 0.09* 0.08* −0.56*** 16 Reactive 0.02 0.16 0.02 0.01 0.00 −0.15*** −0.10** 17 Clan 2.13 0.74 −0.03 0.00 −0.11** 0.05 0.00 0.01 18 Adhocracy 1.53 0.43 0.06 0.04 0.04 −0.02 −0.00 −0.05 −0.12*** 19 Market 1.46 0.46 −0.01 −0.12** 0.13*** 0.01 −0.04 −0.00 −0.45*** −0.03 1

10 Hierarchy 1.73 0.64 0.01 0.03 −0.02 0.05 −0.04 −0.00 −0.40*** −0.34*** 0.00 111 Innovation 3.40 0.62 0.00 0.06 0.09* −0.05 0.02 −0.01 0.00 0.34*** 0.00 −0.24*** 112 Performance 3.76 0.50 −0.04 −0.05 0.03 −0.01 0.02 −0.08 0.12** 0.21*** −0.12** −0.23 0.53*** 1

* p < .1.**

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variable in the second equation; and third, the mediatormust affect the dependent variable in the third equation.If these conditions are all met with the predicted sign, thenthe effect of the independent variable on the dependentvariable must be lower in the third equation than in thesecond. There is perfect mediation if the independentvariable has no effect when the mediator is controlled(Baron & Kenny, 1986: 1177).

Results

Table 3 shows the results of testing Hypothesis 1. As maybe appreciated in this table, when going from Model 1.0(which only includes the control variables) to Model 1.1(which includes the innovation variable), the increase in R2

is significant and ˇ is significantly positive (ˇ = 0.541), whichindicates that innovation has a significantly positive effecton results (ˇ = 0.541). This result provides support to confirmHypothesis 1.

Table 3 Results of hierarchical regression analysis forHypothesis 1.

Variables Y = Performance

Model 1.0 Model 1.1

Industry −0.029 −0.033Age −0.052 −0.074*

Size 0.039 −0.007Analyzer −0.008 0.028Defensive 0.013 0.031Reactive −0.011 0.000Innovation 0.541**

F 0.351 23.732**

2

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p < .05.*** p < .01.

ocus. The former is strongly related to the managementf employee dimension and the latter is similar to theriteria of success dimension. Thus, our measure can beonsidered as valid even though those two dimensions werexcluded. Other previous studies have also measured orga-izational culture using fewer dimensions than the OCAIodel proposes (Deshpande et al., 1993; Lau & Ngo, 2004;benchain & Johnson, 2004). Following the OCAI methodol-gy, 16 items were included in the questionnaire, organizedn four parts (corresponding to the four dimensions used)ith four descriptions in each part. The four descriptionsatched the definitions of each of the four culture types in

he model developed by Cameron and Quinn (1999): adhoc-acy, clan, market, and hierarchy. Respondents were askedo allocate a score, for a total of 100 points, among the fourarts, according to how well the descriptions matched theirrganization.

ontrol variablesour control variables frequently associated with innovationnd performance were included in the analyses (Lau & Ngo,004; Lin, 2006). They were industry (0 = manufacturing;

= service), age (the number of years that the firm has beenunning), size (the number of employees) and strategy (theour types of strategy taken from the model by Miles andnow (1978)).

Table 2 provides information regarding the variable meanalues, standard deviations, and bivariate correlations.

tatistical analysis

he hypotheses were tested using hierarchical regressionnalysis. To assess the indirect effects of culture on firmnnovation, the methodology proposed by Baron and Kenny1986) was chosen. According to that methodology, to

stablish mediation, it is necessary to test three regressionsnd meet the following conditions: first, the independentariable must affect the mediator in the first equation; sec-nd, the independent variable must affect the dependent

R −0.010 0.282�R2 0.289**

* p < .1.** p < .01. Elaboración propia.

Studying the links among organizational culture, innovation, and performance in Spanish firms 37

Table 4 Results of hierarchical regression analysis for Hypothesis 2.

Y = Innovation

Variables Model 2.0 Model 2.1 Model 2.2 Model 2.3 Model 2.4

Industry 0.06 0.06 −0.17 0.006 0.006Age 0.048 0.048 0.33 0.047 0.057Size 0.084* 0.084* 0.70 0.086* 0.081*

Analyzer −0.079 −0.079 −0.61 −0.079 −0.066Defensive −0.031 −0.031 −0.16 −0.031 −0.032Reactive −0.020 −0.020 −0.02 −0.020 −0.015Clan 0.000Adhocracy 0.345**

Market −0.009Hierarchy −0.255**

F 1.050 0.898 9.188** 0.903 5.204**

R2 0.001 −0.002 0.118 −0.002 0.064�R2 0.000 0.118** 0.000 0.065**

*

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p < .1.** p < .01. Elaboración propia.

Hypothesis 2 proposes that organizational culture affectsfirm innovation and that the sign will vary according to thetype of culture. To test this hypothesis, the four types oforganizational culture were independently entered into theequation (Models 2.1 through 2.4) after the control varia-bles. Table 4 shows the results obtained. As predicted, theadhocracy culture has a positive effect on innovation and thehierarchy culture has a negative impact on firm innovation.Although no effect between the clan culture and firm innova-tion or the market culture and firm innovation was proposed,those relations were analyzed. As may be observed, no sig-nificant results were obtained, which is consistent with thereviewed literature on the topic.

Table 5 presents the results for Hypothesis 3. As pre-dicted, the adhocracy culture and the clan culture have apositive effect on performance and the hierarchy culture

ioe

Table 5 Results of hierarchical regression analysis for Hypothesis

Variables

Model 3.0 Model 3.1

Industry −0.029 −0.022

Age −0.052 −0.053

Size 0.039 0.055

Analyzer −0.008 −0.016

Defensive 0.013 0.009

Reactive −0.011 −0.014

Clan 0.123*

Adhocracy

Market

Hierarchy

F 0.351 1.161

R2 −0.010 0.003

�R2 0.015*

* p < .05.** p < .01. Elaboración propia.

as a negative effect on performance. However, the marketulture was expected to have a positive effect on perfor-ance but the effect obtained was negative. Thus, there is

nly partial support for confirming Hypothesis 3.Finally, Hypothesis 3.1 proposes that organizational

ulture has an indirect effect on performance through firmnnovation. To test this hypothesis, the methodology byaron and Kenny (1986) was chosen. The first condition

mplies that culture affects performance. This was proposedn Scenario 3 (Y = performance). The condition is true forhe adhocracy culture and for the clan culture (a positiveffect), as well as for the hierarchy culture (a negativeffect). The second condition was that culture affects firm

nnovation. This relationship is shown in Scenario 2. The sec-nd condition is met for the adhocracy culture (a positiveffect) and for the hierarchy culture (a negative effect).

3.

Y = Performance

Model 3.2 Model 3.3 Model 3.4

−0.041 −0.031 −0.025−0.063 −0.070 −0.040

0.030 0.059 0.0340.003 −0.006 0.0050.023 0.011 0.0140.001 −0.010 −0.006

0.221**

−0.136**

−0.228**

3.227 1.349 3.4340.037 0.006 0.0400.048** 0.018** 0.052**

38

Table 6 Results of hierarchical regression analysis forHypothesis3.1.

Variables Y = Performance

Model 4.0 Model 4.1 Model 4.2

Industry −0.029 −0.035 −0.031Age −0.052 −0.075 −0.068Size 0.039 −0.007 −0.007Analyzer −0.008 0.029 0.032Defensive 0.013 0.032 0.030Reactive −0.011 0.002 0.001Adhocracy 0.035Hierarchy −0.095Innovation 0.528* 0.516*

F 0.351 20.820* 21.553*

R2 −0.010 0.281* 0.288*

�R2 0.290 0.297

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* p < .01. Elaboración propia.

To analyze whether Baron and Kenny’s (1986) third andourth conditions are met, it is necessary to examine theffects of the types of culture and of firm innovation onerformance together. Since the two first conditions arenly met for the adhocracy culture and for the hierarchyulture, the combined effect of those two types of cultures evaluated. Table 6 shows the results obtained. For thedhocracy culture, innovation affects performance, whenhe adhocracy culture is controlled. In addition, the effect ofhe adhocracy culture on performance disappears after firmnnovation is controlled. For the hierarchy culture, inno-ation affects the dependent variable when the hierarchyulture is controlled; likewise the effect of the hierarchyulture on performance drops when firm innovation is con-rolled. Therefore, the third and fourth conditions are met.hose results enable ensuring that firm innovation mediateshe positive effect of the adhocracy culture on performancend the negative effect of the hierarchy culture on perfor-ance.

iscussion

s expected, the findings provide evidence for the relationetween firm innovation and performance. However, theore interesting findings that this research offers refer to

he relation between organizational culture and both firmnnovation and performance.

Regarding the culture-innovation link, the results showhat organizational culture is a key determinant for firmnnovation and that it can actually foster it but that itan also act as a barrier against innovation. In particu-ar, findings showed a positive influence of the adhocracyulture on firm innovation. As identified in the literature onhe topic, certain traits such as creativity, freedom, and aisk-taking attitude associated with the adhocracy culturenhance innovation.

The negative effect of the hierarchy culture on inno-ation seen is also consistent with studies that haveemonstrated that the hierarchy culture traits, such

ttt

J.C. Naranjo-Valencia et al.

s centralized decision making and a high degree oformalization, are negatively associated with innovation.

No significant result regarding the clan culture or thearket culture was found. Although some studies point out

hat the clan culture factors, such as teamwork, are deter-inant factors for innovation, they may possibly only affect

nnovation when other values related to external orientationre present. Something similar occurs regarding the mar-et culture results. Although the customer orientation thatharacterizes the market culture (and also the adhocracyulture) has a positive effect on innovation, other traits,uch as emphasis on mechanistic structure, excessive hier-rchy, emphasis on details, and exerting too much pressuren the employees, may reduce the positive effect on inno-ation that its external focus has. Along those lines, Van Deen, Polley, Garud, and Venkataraman (1999) indicate that

market orientation is not always sufficient and it needs toe accompanied by other conditions, such as creativity, aharacteristic that is absent in the market culture.

With regards to the relation between organizationalulture and performance, there is evidence that the adhoc-acy culture is also the culture with the highest positiveffect on performance, and that the effect of the hierar-hy culture is negative. The clan culture and the marketulture that were found to have no effect on firm innova-ion do have an effect on performance. The clan cultures positively related to performance, although the effect isower than the effect of the adhocracy culture. The marketulture also has a significant effect on performance but with

negative signal.Taking into account the findings for the four types of

ulture, the conclusion may be drawn that flexibility ver-us stability and control orientation is more important thanxternal orientation versus internal orientation when itomes to performance. That is to say, flexibility is a musto improve performance. External orientation is better thannternal orientation but it must be combined with flexibilityo have a positive effect on performance. This idea is consis-ent with some previous researchers’ propositions that someharacteristics of non-adaptive cultures are associated withow performance (Nadler, 1998).

Regarding the mediation role of firm innovation in theelation between culture and performance, it is possibleo conclude that firm innovation mediates the relation ofhe adhocracy culture and of the hierarchy culture. In otherords, the positive effect of the adhocracy culture occursecause that culture fosters innovation among the employ-es whereas the negative effect of the hierarchy cultureccurs because that culture does not promote innovation.

For practitioners, the implications of the above resultsre clear. An organization that wishes to enhance innovationnd performance should pay attention to its organizationalulture as it can be a key enabler of both or a major bar-ier against both, depending on the values comprising theurrent organizational culture of the firm. In particular, thendings of this research show that the adhocracy cultureosters both innovation and performance. Some of the mainalues of this culture are creativity, a risk-taking attitude,

o develop a stable adhocracy culture. It is also importanto highlight that this study shows that an external orienta-ion or a flexibility orientation is not sufficient for the firm

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Studying the links among organizational culture, innovation,

to enhance innovation; companies must focus on both. How-ever, as flexibility is required to improve performance, topmanagement should focus on enhancing it. In short, the find-ings of this research can guide managerial efforts to developan organizational culture that fosters both innovation andperformance.

Future research should delve in more depth into therelation between organizational culture and innovation.A suggestion could be taking into account the stage ofthe innovation process. As organizational traits facilitatingthe generation and implementation of innovation can vary(Damanpour & Wischnevsky, 2006), it would be interestingfor future research to examine whether they require differ-ent types of organizational culture.

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